Financial Strategies for Uncertain Times
There is no doubt that, from a financial perspective, the last year has been difficult. Many experts are comparing the recession to the Great Depression of the 1930s; however, much more is being done in response to this recession by governments and banks than was done in the 1930s. Interest rates have fallen to historic lows. Central banks are doing everything they can to rebuild liquidity in credit markets.
The most important thing when making decisions about your financial future is to remember to be objective. This will help you to sleep peacefully throughout the volatility. If you understand something of what happened after past market sell-offs, you can reach more informed conclusions about what to do today. Those who allowed fear to guide their decisions at similar times in the past, unfortunately, missed out on some of the best days in the market. This decreased their returns quite dramatically as is shown in the article by Manulife Investments, referenced below.
No one can predict just when the markets will return to growth or become steady but if we look at historical data, it is easy to see that the markets don't wait for good economic news to be published in the papers. They tend to go up in anticipation of that good news as we have recently seen. You may miss out on some of the best days if you choose to sit back and wait for the good news first. Speak with your advisor and do your best to remove emotions from your decision-making in the process. Getting an expert opinion can really help through the trying times.
In our work, we have observed a number of different responses to the recent economic conditions. These have included fear, panic, denial, and patience, for example. It has been sorely tempting for many of our clients to consider stopping their regular investment contributions, at least for a while. When the markets are volatile, it is easy to forget the importance of staying invested for the long-term. Many forget, in their discomfort, that their long-term goals were their motivation to start investing in the first place. When we panic, it is easy to forget about, or discount, the potential benefits of self-discipline over the long haul.
Manulife Investments published an article on this topic in the winter edition of Solutions magazine in 2008. The article outlines a conversation between two friends who differ in their approaches to investing. One believes that it would be best to stop her regular investment contributions, given the volatility in the markets; the other believes that her best option is to stay the course. The first is letting her emotions dictate her behaviour; the second is more fearful of losing the habit of saving than she is of coping with the ups and downs of the market. Sound familiar?
In many ways, investing is like exercising. If you want to benefit in the long run, you have to take some of the pain today; if you give in to the urge to stop your discipline, it's much harder to pick it up again later.
The most important thing when making decisions about your financial future is to remember to be objective. This will help you to sleep peacefully throughout the volatility. If you understand something of what happened after past market sell-offs, you can reach more informed conclusions about what to do today. Those who allowed fear to guide their decisions at similar times in the past, unfortunately, missed out on some of the best days in the market. This decreased their returns quite dramatically as is shown in the article by Manulife Investments, referenced below.
No one can predict just when the markets will return to growth or become steady but if we look at historical data, it is easy to see that the markets don't wait for good economic news to be published in the papers. They tend to go up in anticipation of that good news as we have recently seen. You may miss out on some of the best days if you choose to sit back and wait for the good news first. Speak with your advisor and do your best to remove emotions from your decision-making in the process. Getting an expert opinion can really help through the trying times.
In our work, we have observed a number of different responses to the recent economic conditions. These have included fear, panic, denial, and patience, for example. It has been sorely tempting for many of our clients to consider stopping their regular investment contributions, at least for a while. When the markets are volatile, it is easy to forget the importance of staying invested for the long-term. Many forget, in their discomfort, that their long-term goals were their motivation to start investing in the first place. When we panic, it is easy to forget about, or discount, the potential benefits of self-discipline over the long haul.
Manulife Investments published an article on this topic in the winter edition of Solutions magazine in 2008. The article outlines a conversation between two friends who differ in their approaches to investing. One believes that it would be best to stop her regular investment contributions, given the volatility in the markets; the other believes that her best option is to stay the course. The first is letting her emotions dictate her behaviour; the second is more fearful of losing the habit of saving than she is of coping with the ups and downs of the market. Sound familiar?
In many ways, investing is like exercising. If you want to benefit in the long run, you have to take some of the pain today; if you give in to the urge to stop your discipline, it's much harder to pick it up again later.
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